An unbelievable story of fraud rocks Bear Stearns in Atlanta

With a scheme that reads like a made for TV movie, a group of young and not so young hustlers managed to convince Bear Stearns to give them $6.8 million in real estate loans!

One of those loans was a mortgage to Calvin Wright and his wife for 1.8 million. With fraudulent papers, companies, and cohorts to back him, he is documented at Bear Stearns as being an investment banker, and papers show his wife to be a top officer at a marketing firm. The documentation shows that Mr. and Mrs. Wright were earning upwards of $50,000.00 per month, with assets to back them of roughly of $3 million. In reality, Calvin Wright is a telephone technician and earns about $100K per year, and his wife does not work outside of the home at all!

The FBI states that mortgage fraud cases now make up 28% of their workload, as compare to 7% in 2003. (2003 is probably just about when all these schemes were being cooked up!) Suspicious Activity Reports, which lenders are required to file, are up 700% from 2000 and 2006.

Estimates show that losses from mortgage fraud could total a record $4.5 billion for 2006, which is up 100% from the previous year. In some regions, it is widely thought that fraud accounts for about half of all foreclosures.

But, who is to blame for all this mess? There is no simple answer, and no one entity that is responsible. The fraud necessarily needs a lender, sometimes a broker, the criminal that is either forging documents or creating shell companies, appraisers that are willing to inflate values for a cut of the loan, and support companies such as the ones that produce the forged documents.

The stated income loan was truly a calling for deception, hence, it's nickname, the "liar's loan". A recent review of such loan documentation revealed that 60% of the loan paperwork overstated income by 50% or more.

Many lenders outsourced the verification process to brokers and competition became fierce to speed up the process and volume of paperwork that passed over each desk to keep business with the lender.

Overall, the most unbelievable aspect of the Atlanta scheme is that it was, in large part, perpetrated by a 23-year-old college dropout named Gregory Jerome Wings, Jr. aka G-Money. His cohorts included a young club owner, and a director of an underground documentary called "Crackheads Gone Wild", a tale of drug addiction gone overboard.

Maybe the lenders need to hire street folk to sniff out the scammers. I would bet that a large percentage of Atlanta's population knew who Gregory Jerome Wings, Jr. really was - and I'm sure some street folk would talk for some cash in hand.

So, the scheme went like most others. First, find some borrowers with good credit to apply for gigantic loans, using stated income terms, false income documentation and asset statements. Then, find a mortgage broker who was willing to submit the false documentation. Lastly, find an appraiser willing to over value the property. (It is important to note that no appraisers were indicted when the case was finally cracked - it was never found that the appraisers got any extra cut or dividend for over appraising the property - they were just desperate for work to stay alive!)

The same week that Mr. Wright obtained his $1.8 million dollar mortgage from Bear Stearns, he also obtained a $1.9 millions mortgage on a second property near Atlanta. This time the lender was BankFirst, a unit of Minneapolis-based Marshall BankFirst Corp.

Mr. Wright's attorney states that the crimes were incredibly easy, and as Mr. Wright made more and more cash, it was not difficult for him to talk other young people into joining him in his scam. Luckily, some Atlanta residents became suspicious when properties in their areas started selling for sky high prices and then were never occupied, and alerted authorities. One homeowner who assisted in exposing the fraud now carries a loaded handgun in his truck at all times. "We are putting people in prison for many, many years. This is serious stuff."

Though skeptics claim that this relatively inexperienced group of thieves should never have been able to carry this scheme on for so long and to such a high degree, the chagrined prosecutors for the lenders claim that these schemes were very sophisticated, an claim that they had no reason to doubt the authenticity of the forged and falsified documentation.

I am quite certain that many more tales like this one are going to come to light in the coming months. I sincerely hope that this will pretty much be a thing of the past by the third quarter of 2008 and the market will return to normal. Although "normal" may be quite different than it was five or ten years ago.

And, hats off to the appraisers who refused to play the game of grab the money and run! We will be the ones still standing when this whole mess is behind us and will no only not be in jail, but working again!

So, 'til next time, I say, it's all good!
Deb